Case Study: Setting up a Fintech Business in HK

Case Study: Setting up a Fintech

Business in HK

Rajah Chaudhry | Founder & CEO | Paycelerate

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Building a fintech business in Hong Kong

Choosing the right business

Hiring the right team

Setting up in HKUsing HK as a springboard

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Choosing the right business

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Enterprise Buyers Smaller SuppliersMarketplace

Offer discounts for early payment of invoices

Optimized outcomesPay discounted invoices early using balance sheet

Paycelerate - Dynamic discounting marketplace

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There’s a lot going on in Fintech

P2PBlockchain

Big Data

Artificial Intelligence

Payment Gateways

BaaS

Open APIs

Ethereum

ICO

Insurtech

Smart Contracts

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Thinking about a fintech business model from first principles

Painpoint

Potential Opportunity

Existing options

Better solution

Identifiable inefficiencies having a large impact

Large amount of value at stake

Little improvement in last 5 – 10 years

Significant improvement to justify process changes and expense

Proof of Concept A target customer segment to test and prove the concept

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Low yields on short-term deposits

High cost of short-term funds

Enterprise Buyers Smaller Suppliers

Commercial Banks

Long Payment Terms

Painpoint

Lack of meaningful short-term funding and investment options

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Existing Options

Banks unable to provide yield on short-term funds to buyers

Legal

$Headcount

$

Store Network

$

Risk Assessment

$

Legacy Systems

$

Regulations

$

Commercial BanksEnterprises

Funds

Yield

Low Interest Rate

Environment

%

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Existing Options

Solutions for suppliers are unable to adequately serve needs

Factoring Supply Chain Finance

High CaC

High cost of funding

High churn

Low supplier coverage

No financial benefits for Buyer

KYC/AML overhead

Poor Economics Poor User Outcomes

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Better Solution

Spreads are eliminated generating better outcomes

20 – 35%+

6.0%

Factoring

0% 40%

0.3%

6.0%

Treasury Bill Paycelerate

Paycelerate

Cost of Funds for Supplier Yield for Buyer

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Yield on cash at the bank = 0.5%

Short-term funding cost = 15%

Approved Invoice45 days

Better Solution

Approved invoices offer an effective but overlooked mechanism

Buyer

Supplier

Pending15 days

Potential Cashflow Issues60 days

Example 60-day invoice and short-term financing cycle

Invoice Sent Payment Received

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USD 6tn in cashheld by Top-2000 corporates in

APAC and growing

<0.5% intereston short-term capital earned by

corporates in HK

70%+ of suppliersin a typical corporate supply

chain are sub-investment grade

Potential Opportunity

Record Corporate cash generating low yields, SMEs underserved

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Ideal Economics

Access & Location

Clear Use Case

Decision Makers

APAC Corporates with Global Supply Chains

Hong Kong Singapore

Retail Manufacturing

Treasury Supply Chain

All enterprises worldwide

4. Function

3. Sector

1. Type

2. Geography

Proof-of-concept

Focus on customer segment with strong economics and use cases

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Hiring the right team

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Building a team with your client needs in mind

• Solve a core business need

• Better than existing options

• Track record of the provider

• Benefit > cost/effort

• Security (system and data)

• Trust factor

Client Checklist

✓

✓

✓

✓

✓

✓

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General points on hiring at a young company

Find the right fit

• People need to match client expectations

• Company culture very important early on

Always be hiring

• Do your own hiring, avoid recruiters early on

• Build good reputation as an employer

Be patient

• Outsourcing is tempting but not sustainable

• Local talent exists in HK, but risk averse

Pragmatic approach

• You get what you pay for – pay market rates

• Get referrals and do background checks

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Setting up in HK

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Advantages to setting up a fintech business in Hong Kong

Open Economy

LocationWorld class businesses

Talent

Densely populated hub with many of the biggest companies in

the world

Centre of AsiaDoorstep of China

Easy access to South and East Asia

World’s freest economy 23 years running and strong

rule of law

Regional finance expertise and world class university pool

✓ ✓ ✓ ✓

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…but there are challenges as well

FundraisingCosts Admin Regulation

Easy to set up company but not easy to open bank account

and get support

Limited options but you can always find

funding if you have a good business

HK trying with various initiatives but still

catching up

Rent and labor is a major consideration if

setting up in HK

✗ ✗ ✗ ✗

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Using HK as a springboard

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Billions of people <5 hours away Well suited to testing the waters

Concentration of consumers/ businesses - well suited to rapid PoCs

Explore APAC effectively without committing significant resources

HK offers an ideal springboard for testing and expansion

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• Grow revenue base with limited additional investment required

• Leverage network effects from established trading relationships

• Target global supply chains from small number of major business hubs

Our Rationale

• Expand dataset and create additional trade finance products

Building a network from HK based on APAC business hubs